Covid-19 impact on Dublin office sector will be absorbed by long-term investors

Knight Frank says international pooling of risk increases resilience to market shock

Singapore-headquartered Mapletree’s purchase of the Sorting Office in Dublin is consistent with its long-term investment strategy.

While the negative impact of Covid-19 on commercial property values is likely to be immediate, the capacity of Dublin’s office sector to weather the resulting short-term market fluctuation is expected to be bolstered by the fact that much of the capital’s prime stock is now held by international institutions focused on long-term stable income.

That’s the key finding of the latest “Dublin Office Market Overview” from commercial real estate advisor Knight Frank.

While acknowledging that the evidence from publicly-traded real estate companies both domestically and internationally suggests there will be a “material impact on prices in the direct property investment market”, the report notes that “Dublin’s office investor base is extremely well diversified internationally with the resulting pooling of risk increasing the market’s resilience”.

“Much of the capital that has invested in the Dublin office sector is long-term stable income focused and well capitalised to weather short-term fluctuations in the market,” it adds.


Longer-term prospects

Looking at the post-crisis investment landscape, Knight Frank say they expect competition for prime assets in Dublin among long-term core investors to remain strong. This competition will, however, be marked by a “greater focus on the liquidity of tenants and their ability to come through the current uncertainty,” the report says. Expanding on this, Knight Frank say they expect the yield spread between prime assets with long unexpired terms and riskier strategies with active management to widen further.

Commenting on the longer-term prospects for the office sector, the report’s authors say while they do envisage an increase in working from home, this will complement rather than replace the use of office spaces as employees are given greater flexibility to work remotely one or two days a week.

Overall, Knight Frank concludes that the Covid-19 crisis has served to underline the value of the office as a place of collaboration and socialisation for employers and employees.

On this, they say: “Companies have long learned that real estate is a key business infrastructure for driving productivity that more than outweighs the direct real estate cost.”

Ronald Quinlan

Ronald Quinlan

Ronald Quinlan is Property Editor of The Irish Times